BC STARTUPS
Saved by @Jacobtldr

Saturday thoughts on funding: Where it helps. Where it doesn't. And how it affects team, success, and PM fit.

This is just my $0.02 after looking reviewing 30k+ early stage startups personally and having led 350+ investments across 2 VC firms & as an angel.

Let's begin! >>

 1) Money is great to have in building a startup (for the least dilution and pain possible) That's true and always will be true. 😆

But just like how money can't buy you happiness, it also can't buy you PM fit.
2) PM fit is the holy grail for software startups. (we're not talking biotech - if you have a cure to cancer, I guarantee you everyone wants it).

But for software startups, it's unclear if ppl want your product at your price pt.
3) If you don't find PM fit, in this day and age, you will be able to get some sales. Maybe even say $1m in sales (or more!) per year, and you can still make a living.

But having sales does not mean that you have a repeatable customer acquisition process that can be sustainable
4) As an aside, that is why we invest at pre-seed & don't care about startup traction, because I don't believe traction at the earliest stages suggest PM fit. Traction only shows that a founder can execute (& that's impt too) but there are other ways to assess execution earlier.
5) So going back to the crux of software startups.

Frankly speaking, finding PM fit is a LOT of luck. This explains why a lot of serial entrepreneurs who were successful on 1 venture have a hard time repeating that.

It's not a lack of capabilities.
6) That being said, experience from seeing a lot and doing a lot in startups helps you take a better guess at where there may be opportunities to find PM fit. And, serial founders can often execute more quickly on certain things they've done before.
7) But at the end of the day, there's still a lot of LUCK.

This is why SV VCs will often back "failed founders" again, because that failure isn't (always) an indicator of the founder -- there's also that big LUCK component of finding (or not finding) PM fit.
8) So then the q is how do you increase your luck?

I mentioned 1 way -- experience in seeing and doing a lot. (and learning)

Another way: focusing on only things that matter (mostly derisking sales) & ignoring all else to utilize time and resources efficiently and quickly
9) This speed and focus should not be taken likely. Every time you say no to something, you get time back A) by not spending time + mental capacity time on what you said no to and B) by also using that time to pour more focus into advancing PM fit experiments.
10) E.g. If I say "no" to doing a talk. 1 hr of talk time + 30 min of prep call / slides time + mental capacity time = ~10 cust calls to gather insights into their day-in-a-life to work towards PM fit.

But doing just 1 talk feels like nothing but it adds up.
11) So relentless focus and time is impt that most entrepreneurs disregard. Focus and limited are also things that ALL entrepreneurs have limited supply of. We all get 24 hours in a day. So making the most of this is impt.

Now where does money come into this?
12) The obvious one - everyone has a livelihood that requires money. Everyone has a diff cost on this.

And that affects runway. Runway affects # of PM fit experiments.
13) I have seen well-networked teams (both in my own portfolio & friends' cos) clearly not have PM fit after burning through lots of $$ and still be able to raise a LOT more $$ to keep trying.

Then, by extension of their runway, they find strong PM fit and the rest is history.
14) I would argue in both (near) unicorn cases that I'm thinking about, both teams are exceptionally strong. And these particular cos are not examples of VCs throwing $$ down the toilet.

However, I'm very aware that MOST founders don't get 2nd or 3rd chances like this.
15) This also happens in cases where the founders are well-networked AND also not strong and they are able to raise large amounts of money and end up fizzling out because they never get to PM fit and it's a disaster.
16) Money doesn't guarantee PM fit by any means. It does give ppl more shots on goal.

Should ppl get more shots on goal? That's a philosophical q above my paygrade. But the way we operate @HustleFundVC is that we just assume that each of our cos will only get 1 shot on goal.
17) As another aside, what ppl also don't talk about is how much you get diluted down as an early inv even if a co finds PM fit after raising so much more $$.

3 addl rounds -> your ROI is cut in half & that may not even return the fund even if the co "wins".
18) Raising $$ can help in other ways -- recruiting. Many would-be employees like to see some semblance of security & the big rounds help w/ that.

The flip side is if you don't have PM fit, having more ppl on the team makes getting to PM fit HARDER not easier in many cases.
19) So the tl;dr is

a) Money is great to extend your PM fit experiment runway. But only if you use it efficiently and stay lean until you find it.

b) Often ppl who raise big $$ w/ out PM fit end up blowing it / spending it unwisely & hiring too many ppl and never find it.
20) (cont)

c) PM fit is hard to find w/ or without money. This is why the IDEA matters so much. and market pull >> founders.

Good founders + great idea >> Great founders + good idea

Combined with money goes far.

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Today's thread is on the affiliate business model. Many years ago, I used to be an affiliate marketer. If there is any way to get schooled in marketing, becoming an affiliate marketer is probably the best way.

What is affiliate marketing and why should you care?

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1) Affiliate marketing is selling products or generating leads on behalf of other companies and getting paid a commission for those products.

2) Some notable examples you've seen before:

NerdWallet - you read their articles on best credit cards. You click on a link to one of those cards. You fill out an application. They get paid for delivering that lead to the cc company.

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Elizabeth Yin
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Last week, I wrote a thread about generating momentum for startups.

Today's thread is on how emerging fund managers can generate momentum for their fund.

Whatever you do, momentum is so impt to get ppl onboard -- for hiring, for sales, for fundraising.

Read on >>

1) First, why does momentum matter?

Think about it from the "buyer's perspective" -- it is almost ALWAYS better to wait and get more information if you can get the same deal. Right?

More info on a potential investment. More info on a new product. Etc.

2) There are few situations where it's impt to be a first mover.

If you're a product buyer, it could be you have a dire situation at your company that alternatives can't handle.

But if you have a decent alternative (alternative product or alt investment), it's better to wait.

3) That means it's YOUR JOB to create momentum. Whether for fundraising, sales, or hiring.

So with that in mind, how do you generate momentum for fund fundraising?

4) In a prior tweet about generating momentum for startup fundraising, essentially I said to limit your supply (the amnt you are raising) in tranches AND to increase demand by packing in mtgs.

Unfort this doesn't quite work well for funds.
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Elizabeth Yin
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@dunkhippo33
Saturday thoughts on market pull. What is it? How is it different from Total Addressable Market (TAM)? And what ideas tend to have strong market pull?

A thread >>

1) First: "Market pull" != market size.

IMO (and most VCs will disagree!!), market size (TAM) doesn't *really* matter. But market pull DEFINITELY does. For that reason, I've almost never asked a startup about TAM.

Why?

2) First, what is TAM?

TAM is a sizing of how big your market is. A good way to estimate this is - if you can get to all potential buyers and based on how much $$ they are worth to you, how much money can your company make if you took the whole mkt?

3) An example: Say we run an e-commerce site that sells hippo food. TAM in the world:

-1000 zoos have on average 3 hippos = 3000 hippos.
-Each hippo eats $100 worth of food each day
-365 days * $100 * 3000 hippos = $110m per year globally

4) But, we'll come back to this.

Why I don't like TAM - it doesn't take into acct a few things:

A) how hard it is to get customers
B) how much more you can upsell once you have customers
C) how fast the mkt is moving up or down
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Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Today's thread is a continuation on *how* you generate momentum in fundraising.

Here's a rough conversation I had with a founder (called 'C') over the course of days a few months back.

Read on >>

1) C: I'm having trouble raising. VC A and VC B are taking so long to get back to me.

Me: Oh, when did you meet w/ them?

C: 3 weeks ago.

2) Me: Oh, are you mtg w/ anyone else?

C: No, I got busy working. I had all these sales calls to make.

Me: That's the problem - there isn't a reason for them to move quickly. There's no investor at the table.

3) C: But I have all these sales calls to make!

Me: I really don't have a great answer for you here. This is probably the hardest part about fundraising - juggling your actual job w/ your fundraising job, which is full-time too.

4) Me: You need to hand off your sales calls to your co-founder. And then you can do mtgs back to back.

C: Ok...

[some time passes]

C: Ok - I'm ready.

Me: How much do you want to raise and what are you using the money for?
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A thread on employee equity in early stage startups -- what are the compensation norms? What every early employee should ask? Some thoughts on whether the structure is fair.

Read on >>

1) First, there are NO NORMS! Hah. I have literally seen everything from giving early employees no equity to giving employee #1s near co-founder level of shares.

But what is more common than not?

2) In the Silicon Valley, if you're hiring your 1st employee, & you've raised NO $$ & are paying very little (e.g $0-$10k / yr or thereabouts), your first employee is basically a co-founder.

And the equity tranche for employee 1 should be closer to a co-founder level.

3) For ex, a friend of mine gave his employee #1 10% (vesting over 4 yrs of course) of the business. This employee was only getting his housing paid for. And this was 10 yrs ago, so it was during the bust.

4) On the flip side, if you have raised some $$ & are paying employee #1 near mkt rate, typically I see around here ppl get 1-5% (w/ vesting).

Caveat - near mkt rate doesn't mean compared to Google or FB salary rates. I mean compared to "normal big cos"
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